Your Money.

Planning, Patience Stretch Car-buying Power

Consider Earning Charge-card Rebates, Shopping For Low-interest Loans And Making A Big Down Payment

October 19, 1995|By Richard Truett, Knight-Ridder/Tribune.

Like many consumers these days, Maurice Hamilton of Altamonte Springs, Fla., thinks new car prices are ridiculously high. Hamilton, who works for an Orlando area banking software company, said he boycotted the car industry for several years because of high prices. But he decided recently that his family needed two new vehicles.

So Hamilton started looking for ways to save money. With the average price of a new car now slightly over $20,000, affordability is a major issue for car buyers.

Your heart tells you that you want that new car, but your head--and more importantly your bank account--says you just can't afford it.

Or can you? With a little bit of planning, some patience and maybe a slight attitude adjustment, you might be able to come up with a strategy that will stretch your buying power.

Because Hamilton has a brother who works for GM, he took advantage of a special program that lets family members of GM employees buy vehicles at a discount. That shaved $1,200 off the price of a Chevy S-10. Hamilton also got a General Motors Card, with which he earned $500 rebates on the S-10 and on a Pontiac Firebird.

Earning rebates through a charge card is only one of many ways to make a new vehicle more affordable. Formulate a plan that will allow you to afford the vehicle you want. Here are some things to consider.

- The down payment. The more money you put down, the less your monthly payments will be. Sure, that's just common sense. But consider these numbers: Let's say you want to buy a $20,000 truck, and you'll finance it for 5 years at 10 percent interest.

Put $1,000 down, and you'll pay $404.27 per month. But come up with a $5,000 down payment and your monthly payment will be a more manageable $319.16.

How do you come up with more cash up front? One way is to consider selling your old car instead of trading it in. You're likely to get more money out of the vehicle that way--especially if it is an older vehicle. Most dealerships don't pay much for cars that are more than 5 years old, because they're hard to resell.

Sure, it's often easier to trade in a car than to hassle with cleaning up and advertising it yourself. But if you can sell the car at or a little below its retail value, you'll be able to put the extra cash toward a down payment.

However, Dennis Hadd, general manager of McNamara Pontiac in Orlando, recommends seeing how much a dealer will offer on trade before trying to sell your car. Trading in an old car will reduce the sales tax you'll pay on the new vehicle. The value of your trade-in is subtracted from the full price of the new car, and you'll pay tax on a lesser amount.

- Time your purchase. If you have a new car in mind, you generally can get a better deal if you know when to buy. Ted Orme, spokesman for the National Automobile Dealers Association in Virginia, said the end of every month and the end of the model year (August and September) are the best times to make a purchase.

"You'll see a flurry of activity at the end of each month. Dealers work on a `turn and earn' system," Orme said. That means that the more cars a dealership sells, the more it can order.

- Consider applying for an automaker's credit card. The rebates you'll earn from Ford and GM by using their credit cards are like free money. And if you wait until the end of the year to buy a new car, chances are you can build up the year's maximum rebate. You can earn up to $500 per vehicle per year by using GM's card; Ford pays up to $700 per vehicle per year.

The dealer takes the rebate off the price after you've negotiated your best deal. He is reimbursed by the manufacturer, so there is no additional haggling. You can get a credit card application at a Ford or GM dealership.

- Shop for the lowest interest rate. The price of the car is not all that is negotiable. You often can bargain over the interest rate--especially if you are financing the vehicle through the dealership. A lower interest rate can knock some serious cash off the monthly payment.

These days, the interest charged by most banks and credit unions is between 7 and 10 percent.

The down payment is perhaps the most important part of the deal--and the biggest hurdle for many buyers, said Hadd. It's not uncommon, he said, for buyers to be "upside down" on their car loans, meaning that they owe more than the vehicle is worth.

"They didn't put enough money down when they bought it. The reason is not because someone ripped them off, it's because they bought more car than they could afford."

- The car. Choose those options carefully. Here is where you may need to make a slight attitude adjustment. If you have your heart set on a particular model, but can't afford it, consider cutting back on options.

Sure, we would all like to sit on leather seats and have a full array of electrical accessories. But these things can jack up the price of a car and leave you standing at the curb.

That doesn't mean you have to forgo all options. Some people feel safer in a car with electric door locks and windows. And if you do a lot of highway driving, then you probably would want to have cruise control.

One other thing: If you don't mind shifting, a car with a manual transmission often sells for about $1,000 less than a car with an automatic.